MICROCAPITAL BRIEF: Kenyan Regulators Approve Equity Bank Mobile Money Services Despite Security Objections from Safaricom

The Communications Authority (CA) of Kenya, the government body that regulates the communication industry in the country, and the Central Bank of Kenya (CBK), the country’s central banking authority, have given their approval to Equity Bank, a private Kenyan microfinance bank, to roll out a one-year pilot of its mobile money services using “Thin Sim technology” [1]. The technology consists of a film that is 0.1 millimeter thick layered over an existing phone SIM card, the card inside a cellular phone that carries an identification number unique to the user. Safaricom, a Kenya-based cellphone service provider that operates the mobile money transfer service M-Pesa, has objected to the technology, arguing that it poses risks to the security of M-Pesa’s mobile money transactions [2]. Safaricom contends that the Thin Sim could “steal data from the main SIM, including the secret personal identification numbers and pass them to a third party.” CA and CBK have established that the technology complies with the mandatory standards but have stipulated that for the pilot period of one year “any vulnerability detected will lead to the suspension of the service.”

As of 2013, Equity Bank reported to the US-based nonprofit Microfinance Information Exchange (MIX) USD 2.8 billion in total assets, a loan portfolio of USD 1.8 billion outstanding to 704,200 borrowers and deposits of USD 1.8 billion from approximately 7.4 million depositors. It reported return on assets (ROA) of 5.53 percent and return on equity (ROE) of 28.12 percent.

As of March 2014, Safaricom has approximately 22 million subscribers in East Africa. As of 2013, M-Pesa serves approximately 16 million clients through 79,000 agent outlets in Kenya and 5 million clients in Tanzania.

By Nisha Koul, Research Associate

About Equity Bank: Equity Bank, founded in 1984, is a microfinance bank based in Nairobi, Kenya, that provides loans, savings and fund transfer services. It is involved in microfinance operations not only in Kenya, but also in South Sudan and Uganda through its subsidiary, Equity Bank Uganda. As reported to the Microfinance Information Exchange (MIX) in 2013, Equity Bank has USD 2.8 billion in total assets, a loan portfolio of USD 1.8 billion outstanding to 704,200 borrowers and deposits of USD 1.8 billion from approximately 7.4 million depositors. It reported return on assets (ROA) of 5.53 percent and return on equity (ROE) of 28.12 percent.

About M-Pesa: M-Pesa is a mobile money service that was launched in Kenya in 2007 and has since been replicated in Eurasia and elsewhere in Africa. The “M” stands for “mobile,” and “pesa” means “cash” in Swahili. Launched by Safaricom Limited, a Kenya-based cellphone service provider, M-Pesa was developed by Vodafone Group Private Limited Corporation, a British mobile network operator. As of 2013, M-Pesa serves approximately 16 million clients through 79,000 agent outlets in Kenya and 5 million clients in Tanzania. As of the same year, M-Pesa is also available in Afghanistan, Egypt, India, Lesotho, Mozambique and parts of Eastern Europe. M-Pesa was relaunched in South Africa in July 2014 after first being introduced in 2010 and suspended in early 2014.

Sources and Additional Resources:

[1] Standard Digital, Safaricom loses battle to block Equity Bank’s thin sim card

[2] Standard Digital, Safaricom, Equity Bank thin sim wars a distraction that should not drag on

MicroCapital, September 2014, Safaricom Lowers M-Pesa Transaction Fees for Electronic Person-to-Person Transfers in Kenya

MicroCapital, June 2013, Equity Bank, Google Announce BebaPay Card for Paying Bus Fares in Kenya

MicroCapital Universe Profile, M-Pesa

MicroCapital Universe Profile, Equity Bank

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